Question

Jennifer, a self-employed taxpayer, is married and has two children. As her Tax Advisor, she has asked you to explain the tax and non-tax advantages of creating a Health Savings Account (HAS) for her and her family.

• Explain if having an HSA is really worth it to someone in Jennifer’s situation.
• Should all taxpayers take advantage of such tools? Explain and justify your reasoning using accounting practices and principles.

Answer 1

HSA is the Health Savings Account for the taxpayers in the United States who are enrolled in a High deductible Health Plan(HDHP). It is a tax advantaged medical savings account which is owned by the employee to use for future medical expenses. These are not taxed under Federal income tax at the time of deposit. It can be used at a later stage at the time of retirement, but withdrawn before for non medical expenses will be penalised. But it is not taxed even after retirement as long as it is udsed for medical expenses.It makes the users to be health concious and increases the efficiency of health care system.

For an individual to be eligible for Health Savings Account (HSA)

1)Should be covered under High Deductaible Health Plan(HDHP) from the day one of the month.

2)Should not be covered under any other health coverage except covered under other health coverage

3)Shouldn't be claimed as a dependent under other tax returns.

4)Shouldn't be enrolled for medicare.

AS on 2020 the contribution limit towards HSA is $3550 for an individual and $ 7100 for a family.

Jennifer bein a self employed is eligible for HSA as long as she satisfies all the above mentioned.

As the contribution to HSA is not taxed while contribution or even after the retirement as long as it is used for medical purposes it is not taxed. So Jennifer can contribut to HSA a total sum of $7,100 to avail the benefits of the Non-taxes.Not only Jennifer anyone who is Jennifer situation is worth to have HSA as we get non tax advantages.

All tax payers should take the advantages of such tools because Having HSA will give you more tax advantage when compare to medicare which provides you less % of 1.45% which is taxed after retirement.

As per the revenue recognition principle the revenue is recognised when it is realised. Since the Contribution towards the HSA is income as there is no tax liability it is revenue for every individual and is advantageous to everyone.